Vinh thinks that while Apple is “an attractive stable revenue base for component suppliers, despite a slowdown in iPhone sales,” the key is to look to suppliers who are gaining share and may increase their content in Apple’s “platforms.”

He like InvenSense, given its sensors are in many other smartphones and winning Apple can be the “key catalyst” this year:

InvenSense products have been designed into virtually every major smartphone platform, so we believe it is extremely well positioned to penetrate Apple in 2013 for both the iPhone and iPad […] We believe InvenSense has a significant opportunity to be designed into Apple’s latest-generation iPhone and iPad in 2013. Most recently, InvenSense indicated that it was doubling its capacity to 500 million to 600 million units from 300 million units in 1H13. Increasing gyroscope attach rates a key growth driver. Currently approximately 40% of smartphones support gyroscopes, which is broadly reflective of the high-end to mid-range smartphone market. We expect that the attach rates of gyroscopes will become more broadly adopted in more mid-range to low-end smartphones and could easily achieve 50% to 60% attach rates over the next few years. China baseband providers, such as MediaTek and Spreadtrum (SPRD), have designed InvenSense gyroscopes into their reference platforms, which we see as a key growth driver for InvenSense over the next few years.

As for CRUS and OVTI, Vinh is worried that susurration of the high-end smartphone market means less upside for these existing suppliers. Drawing upon the work of his colleague Andy Hargreaves, who rates Apple stock Sector Perform, Vinh sees Apple’s iPhone sales roughly flat this year. though China is a swing factor in all this:

We believe that the saturation of the high-end smartphone is a headwind to the Apple supply chain components, and we are forecasting iPhone growth to be flat in 2013 and outpaced by growth in the broader smartphone market, which is estimated at 14%. De- spite the disparity, we believe that much of the growth is due to the Chinese smartphone market. If we exclude Chinese smartphones from our analysis, where we see minimal profit opportunities for component suppliers in any case, we project Android unit growth of 5% in 2013, which significantly narrows the discrepancy between Apple and the broader market.

Canaccord’s Burleson is much less concerned with the growth trajectory, and thinks despite rumors of supply cuts for this quarter for the iPhone, overall Apple orders are likely to propel business above that of other corners of the semi industry:

We believe substrate demand from semiconductor suppliers levered to Apple was in line in Q4, while Q1 orders are generally above those for non-Apple suppliers. Overall, we anticipate substrate demand in Q1 is likely to be down 5-10 percent sequentially, whereas substrate for Apple suppliers is likely to be flat, including power amplifiers, baseband and connectivity. This is slightly better than our previous expectation for Q1 substrate for Apple suppliers to be flat to down 5% and supports our view that key semiconductor suppliers to Apple are not seeing meaningful cuts.

Cirrus stock, moreover, has the most potential upside, he thinks, given recent share underperformance:

We believe Cirrus is the best play on a recovery for stocks in the Apple supply chain given Cirrus’s weak share performance since CQ3 earnings (down 28%) and the company’s industry-high exposure to Apple (roughly 80% of revenue).

Cirrus shares today are down 63 cents, or 2%, at $28.77, InvenSense shares are off 8 cents, or 0.6%, at $12.53, OmniVision shares are down 26 cents, or 1.7%, at $15.03, and Broadcom stock is off 34 cents, or 1%, at $34.48.

There are 2 comments

Once again, an assumption that iPhone sales are slowing. Given the initiation of sales in different markets, 2 million iPhones sold in China the first weekend on the market, sellout of iPad Minis in both mainland and Hong Kong - and today's Verizon report that earnings in the last quarter were hurt by a flood of new iPhone 5 activations -- well, it's hard to appreciate where outside Alpha Centauri iPhone sales were "down."

JANUARY 22, 2013 6:39 P.M.

mds wrote:

I think these theories are insane; and this guy will look like a fool; starting tomorrow.

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Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.